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A Dynamic Analysis of Tied Aid

Author

Listed:
  • Bharat R. Hazari

    (Chercheur indépendant)

  • Jean-Pierre Laffargue

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Chi-Chur Chao

    () (The Chinese University of Hong Kong [Hong Kong])

  • Eden S. H. Yu

    (CUHK - City University of Hong Kong [Hong Kong])

Abstract

In this paper we examine the impact of tied aid on capital accumulation and welfare in the presence of a quota on imports. Using a simulation model we establish that tied aid can lower the relative domestic price of the manufactured good and therefore reduce the stock of capital. In the presence of a strong production externality from capital accumulation and high tying ratio, tied aid may immiserize the recipient country.

Suggested Citation

  • Bharat R. Hazari & Jean-Pierre Laffargue & Chi-Chur Chao & Eden S. H. Yu, 2007. "A Dynamic Analysis of Tied Aid," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270896, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00270896
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00270896
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-618, September.
    3. Martin, Ricardo, 1977. "Immiserizing growth for a tariff-distorted, small economy : Further analysis," Journal of International Economics, Elsevier, vol. 7(4), pages 323-328, November.
    4. Schweinberger, A G, 1990. "On the Welfare Effects of Tied Aid," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 457-462, May.
    5. Jones, Ronald W, 1985. "Income Effects and Paradoxes in the Theory of International Trade," Economic Journal, Royal Economic Society, vol. 95(378), pages 330-344, June.
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    7. Jagdish N. Bhagwati & Richard A. Brecher & Tatsuo Hatta, 1985. "The Generalized Theory of Transfers and Welfare: Exogenous (policy-Imposed) and Endogenous (Transfer-Induced) Distortion," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 697-714.
    8. Kemp, Murray C & Kojima, Shoichi, 1985. "Tied Aid and the Paradoxes of Donor-Enrichment and Recipient-Impoverishment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 721-729, October.
    9. Jeffrey B. Nugent & Makoto Yano, 1999. "Aid, Nontraded Goods, and the Transfer Paradox in Small Countries," American Economic Review, American Economic Association, vol. 89(3), pages 431-449, June.
    10. Hamid Beladi, 1990. "Unemployment and immiserizing transfer," Journal of Economics, Springer, vol. 52(3), pages 253-265, October.
    11. Chi-Chur Chao & Eden S. H. Yu, 2001. "Import quotas, tied aid, capital accumulation, and welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 661-676, August.
    12. Lahiri, Sajal & Raimondos, Pascalis, 1995. "Welfare effects of aid under quantitative trade restrictions," Journal of International Economics, Elsevier, vol. 39(3-4), pages 297-315, November.
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    16. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
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    Keywords

    Tied aid; Quotas; Capital; Welfare;

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